2012 (9) TMI 544 - HC - Income Tax

Withdrawal of the interest allowed u/s 244-A - the total payment made by the assessee-company being less than the total interest payment - Held that - Where valuable rights of refund and interest is involved the Income Tax Authorities are not required to draw assumption on the quantum of the amounts. In this case there is no other material placed by the respondents to justify the inference other than the quantum of the amount being less than the interest payable to support the assumption that the deposit was of interest and not of tax. To test the assumption if we deduct the interest of Rs.1 83 53 133/- out of the total amount of Rs. 3 61 46 374/- liable to be paid by the petitioner the amount of tax comes to Rs. 1 77 93 241/- which is more than the amount deposited by the petitioner. Thus as the amount in question was deposited as tax and not as interest and also that even if a presumption could be drawn that the amount was deposited as interest the interest under Section 244A (1) of the Act was payable on interest - petitioner-company will also be entitled to interest on this amount from the date of deposits - in favour of assessee.

Summary

Issues Involved:

1. Entitlement to interest on refund under Section 244-A of the Income-tax Act.
2. Validity of rectification under Section 154 of the Income-tax Act.
3. Interpretation of payments made towards tax versus interest.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Refund under Section 244-A of the Income-tax Act:

The petitioner-company, M/s Lohia Starlinger Limited, claimed entitlement to interest on the refund under Section 244-A of the Income-tax Act. The primary contention was that the amount on which interest was claimed and paid was the tax amount deposited or adjusted with the refund of the earlier assessment year. The petitioner argued that under Section 244 of the Act, the term 'tax' includes interest, and thus interest is payable on the amount of interest.

The court examined precedents such as Delhi Development Authority v. ITO and CIT v. Goodyear India Ltd., which supported the view that interest is payable on the refund of tax amounts, including interest components wrongfully withheld by the revenue. The court concluded that the petitioner was entitled to interest under Section 244-A of the Act on the amount of refund, affirming that the amount deposited as tax could not be treated as interest.

2. Validity of Rectification under Section 154 of the Income-tax Act:

The Assessing Authority had withdrawn the interest allowed under Section 244-A through an order dated 12.8.1998, invoking Section 154, which provides for rectification of mistakes. The petitioner challenged this rectification, arguing that the payment of interest under Section 244-A was a debatable issue and outside the purview of Section 154, which admits only rectification of apparent mistakes.

The court agreed with the petitioner, noting that the rectification under Section 154 was based on assumptions rather than verified facts. The treasury challans submitted by the petitioner clearly demonstrated that the amounts were deposited as income-tax and not as interest. Consequently, the court held that the rectification order was invalid and set it aside.

3. Interpretation of Payments Made Towards Tax Versus Interest:

The core issue was whether the payment of Rs. 1,74,10,640/- by the petitioner against the total demand of Rs. 3,61,46,374/- (including interest of Rs. 1,83,53,133/-) was towards tax or interest. The Assessing Authority assumed that since the payment was less than the interest payable, it should be treated as interest.

The court found this assumption to be unfounded. The treasury challans indicated that the payments were made as income-tax. The court emphasized that the Income Tax Authorities should not draw assumptions regarding the nature of payments when valuable rights of refund and interest are involved. The court concluded that the amount in question was deposited as tax and not as interest, and even if a presumption could be drawn that the amount was deposited as interest, interest under Section 244-A (1) was payable on the interest.

Conclusion:

The writ petition was allowed, and the orders passed by the Assessing Officer dated 12.8.1998 under Section 154 and the revision order dated 17.7.2000 were set aside. The petitioner-company was entitled to the refund of Rs. 22,57,869/- along with interest from the date of deposits.